The EUR/JPY pair is trading at around 183.80, down by 0.25%. This drop is linked to the Japanese Yen gaining strength, thanks to signals from the Bank of Japan about possible future rate hikes. After the Bank of Japan raised its interest rate from 0.50% to 0.75%, some policymakers discussed the need to stick with a tightening approach. A few even suggested there could be more hikes by 2026. In contrast, the European Central Bank (ECB) has kept interest rates steady, focusing on a cautious, meeting-by-meeting strategy due to ongoing uncertainty.

Impact Of ECB Policy On Euro

The ECB’s clear commitment to maintaining its current policy has helped stabilize the Euro, reducing fears of further losses. Currently, the market sees less than a 10% chance of a rate cut by the ECB in February. The chart shows the Japanese Yen has strengthened against several major currencies, notably rising 0.75% against the New Zealand Dollar. This illustrates how monetary policy decisions impact currency trading. You can see each currency’s movement as percentage changes against others for better insights. As we approach the last trading days of 2025, the Bank of Japan’s hawkish stance remains a key factor for the Yen. Their recent increase in December to 0.75% is the highest level in over twenty years. Minutes from the meeting suggest more tightening might be on the way in 2026. This difference in policies with other central banks is likely to boost the Yen’s strength into the new year. To support this view, we can look at Japan’s core inflation from November 2025, which stood at 2.8%. This rate is persistently above the BoJ’s 2% target, unlike the trends of 2023 and 2024. The central bank clearly has a solid basis for action. This shift in policy is genuine, and the market is still adjusting to this change.

Strategy For EUR/JPY Options

On the other side of the pair, the European Central Bank is hinting at stable policies, which supports the Euro but doesn’t provide a strong reason for it to rise significantly. Recent flash PMI data for the Eurozone showed manufacturing in contraction at 48.2, and inflation is steady at around 2.4%. This justifies the ECB’s decision to hold steady. While this offers a solid base for the Euro, the momentum is clearly with the Yen. Given this situation, traders might consider buying put options on the EUR/JPY for expiries in January and February 2026. This strategy allows for potential profit from further declines in the pair while limiting possible losses. Strike prices around 182.00 or 181.50 could strike a good balance of risk and reward based on the current price of 183.80. The differences in central bank policies are expected to raise implied volatility in the upcoming weeks, especially after the holiday season when liquidity improves. We’re already noticing that one-month volatility for EUR/JPY has increased from the lows seen earlier in the fourth quarter of 2025. Higher volatility makes options more costly, so establishing your positions sooner could be beneficial. Historically, major changes in the Bank of Japan’s policy result in extended periods of Yen appreciation. We saw this when the BoJ ended its negative interest rate policy in early 2024, which led global funds to reposition for several months. The current rate hike cycle appears to be a more aggressive continuation of that initial change. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now